Crisis leaves Argentines fearing for savings, jobs

Argentines fear for savings, jobs as financial instability hits home

JOSHUA GOODMAN, Special to the Chronicle

Published
5:30 am CDT, Tuesday, July 31, 2001

BUENOS AIRES, Argentina -- Like every Argentine, 29-year old Silvia Lopez has grown used to the grim headlines about her country's dimming economic prospects. But as a well-paid administrator at a giant U.S. software company, she never saw them as her problem.

Not any longer.

When rumors of a government default accelerated this month, sending interest rates skyrocketing and bond prices plummeting, Lopez and her husband took the drastic step of wiring their dollar-based savings to a Citibank account in the United States.

"I've always saved in dollars just to be safe, but this is the first time I'm scared my money could disappear," Lopez said.

She's not the only one being spooked into action by the specter of a financial meltdown.

Although Wall Street began writing off South America's second-largest economy months ago, for regular Argentines the severity of the crisis provoked by more than three years of economic slump is only now sinking in.

As a result, people from construction workers to executives are frantically making up for lost time.

What shattered any hope Argentines had of an imminent recovery was a fumbled debt sale on July 10, when the government paid a record 14 percent to sell short-term notes. In the face of a meteoric rise in bond yields -- to levels unseen even by recent defaulters Ecuador and Russia -- the government came clean and admitted the obvious, that Argentina had run out of credit.

This embarrassing episode was just the latest in an ongoing economic depression that had already begun to force skilled workers to look abroad for employment and local entrepreneurs to pinch pennies in order to survive.

For most, like Lopez, preparing for the worst invariably involves a trip to the bank.

Despite the fact that Argentina's peso has been locked 1-to-1 with the dollar for over a decade -- with each peso in circulation backed by a dollar in reserves -- the fears of a default and subsequent devaluation have led to an upsurge in demand to exchange pesos for greenbacks.

In a throwback to the chaotic days of hyperinflation in the late 1980s, residents of Buenos Aires this month were witnesses for the first time in years to the sight of panicky depositors in lines that stretched into the street.

Faced with the swell in demand, many banks ran out of dollars. Meanwhile, normally staid exchange houses, which usually charge only a nominal commission to exchange notes, capitalized on the cash shortfall by offering small premiums to capture dollars.

According to Argentina's central bank, the minirun peaked on July 13, when $700 million left the financial system in a single day.

As July comes to an end, it appears the Argentine banking system could lose 9 percent of its deposits for the month, according to Bloomberg News.

The central bank has been helping to fill this gap by easing reserve requirements, freeing up cash for withdrawals. But there's a limit to this approach.

The central bank's other options could confirm the worst fears of Argentines. Jeanne Del Casino, a senior analyst for bond-rating firm Moody's, wrote in a report that continued withdrawals could force the goverment to impose a bank holiday or deposit freeze.

Analysts have said that continued withdrawals could force the authorities to order a bank holiday or freeze deposits.

The outflow has since calmed, thanks largely to Economy Minister Domingo Cavallo's last-minute plan to cut spending and eliminate a $1.5 billion fiscal deficit for the remainder of the year. On Monday, lawmakers here passed a law requiring the spending limits asked for by Cavallo, but financial markets showed little improvement

Since taking office March 23, Cavallo, architect of the rigid exchange system that stabilized the economy in his previous stint as economic minister under ex-President Carlos Menem, has tried to play up his white knight image and assure Argentines their pesos are safe.

But facing international pressure to end the suspense once and for all, even the capable Cavallo may not be able to turn the country's economy around in time to avoid default on a $130 billion debt that's equal to almost half of the country's gross domestic product, snalysts say.

Although Argentina's financial system is much stronger than it was after the 1995 Mexican peso crisis, analysts say it remains vulnerable to the government's precarious fiscal situation and public fears they might freeze deposits to fix it, as it did in 1990.

"I'm not going to let politicians take my savings hostage like they did to my parents in 1990," Lopez said in reference to the much-derided Plan Bonex, whereby the government confiscated fixed-term deposits and exchanged them for 10-year bonds as way to eliminate triple-digit inflation.

Finding a safe haven for one's savings isn't cheap, though. Lopez had to pay over $200 in commissions alone to wire $25,000 overseas, not to mention the cost and hassle of setting up an account in the United States.

But all in all, Lopez got away unscathed, compared with others who likely will see their lives transformed by the prolonged downturn.

Leandro Stucchi, a 29-year-old university-educated computer programmer, is accustomed to managing the complex networks and databases used by big businesses.

Or at least he used to be. Stucchi hasn't worked since Christmas last year, the day his employer of two years, an HMO, handed him a pink slip. Since then, despite having sent out over 400 resumes, he's been called for only a handful of interviews.

"At first I thought that with my experience I'd have no difficulty finding a job," said Stucchi, who now spends his days practicing English and brushing up his computing skills with the help of thick manuals. "But the entire economy is paralyzed."

To be sure, Stucchi isn't alone. Buoyed by a collapse in consumer activity, unemployment in May, the most recent figure available, jumped to 16.4 percent, a six-year high. That was up from 14.7 percent the previous October.

Meanwhile, those lucky enough to have a job must deal with work stoppages or pay cuts. Pay reductions of up to 30 percent have been widely reported in the news, and are found in interviews with workers here.

Indeed, things have gotten so desperate of late that spontaneous mobs of angry, out-of-work citizens have started blocking major highways, sometimes for several days, thus adding fuel to an already tense situation.

The media, reflecting the public's fear of the menacing trend, has even come up with a name for the protesters: los piqueteros, literally, the picketers.

Although Stucchi sympathizes little with the sometimes-violent tactics of los piqueteros, in his own silent way he could potentially inflict even more damage on the economy.

Like a growing numbers of Argentina's best and brightest, Stucchi might not be here when Argentina awakens from its economic slumber.

"I've started applying for jobs in the U.S. and Spain. I'd like to stay in Argentina, but I can't live off my savings forever," he said.

Although official estimates don't exist, European and U.S. consulates report a record surge in visa applications this year.

Meanwhile, about 100 teen-agers recently took up Spain's offer of free citizenship and a $500-a-month salary in exchange for risking their lives as new conscripts in the armed forces.

For a country built on the backbreaking labor of poor European immigrants, it's difficult to imagine a more disheartening scenario than that of its future generations giving up hope.

But even those willing to stick it out are beginning to have second thoughts. Alejandro Rodriguez, who owns a chain of fast-food restaurants, said he's trying hard to avoid cutting salaries and firing workers even while sales at his five stores have fallen an average of 15 percent and his competitors declare bankruptcy.

Even so, this entrepreneur, who spent his entire $40,000 life savings to open his first store in 1997, said his capitalist instincts are being slowly extinguished.

"I've got experience and access to credit, but I'm afraid to expand because there's no margin to make a mistake," Rodriguez, 34, said.